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Which Holiday Pricing Strategy Will Win?

14 Dec, 2004 By: Holly J. Wagner

It's interesting to watch the holiday pricing derby at sellthrough this year. Consumers are holding tighter than expected to the purse strings in most categories other than home electronics.

A lot of merchants set out hoping not to have to discount items as much as in years past, but after Black Friday, consumers seemed to abandon a lot of stores, either for the easy comparison shopping of the Web or just holding out for better deals.

Even Wal-Mart, which went into the season vowing not to cut as deep as last year, moved quickly after Black Friday to drop prices on 20 toy and electronic items to keep shoppers coming in. Conversely, consumers punished Circuit City for not offering street-date discounts, then stockholders followed suit, bailing out on the company (which will report third-quarter results Friday).

And while gift cards rack up mountains of sales over the holidays, you can bet consumers will wait for those post-Christmas sales to make sure they squeeze every penny of value out of those cards.

I have to hand it to Trans World, which seems to be playing both ends. The ubercompany for chains including FYE, Wherehouse, Spec's Music, Coconuts and Strawberries is offering rebates by mail on several of the season's hot titles. This works for them in two ways.

I say that because I was in a Wherehouse store over the weekend and saw new Spider-Man 2 DVDs discounted to $19.99, about $3 off the regular price. But consumers can mail for a $5 rebate on the title. I also saw the title pre-viewed for $11.99 just a few paces away from the new-release display.

For Trans World, which is probably paying maybe $7 to consumers who sell off the disc, they get $5 profit on the used sale. Used discs let them undersell their own price while the rebate lets them collect what I'm guessing is about a $2 margin on the new title at the register, knowing that 30 percent is a high redemption rate for mail-in offers. They will only have to pay the $5 back to a limited number of buyers, and they still hold the money in Trans World's accounts generating interest for, I'm guessing, six to eight weeks.

It's a smart way to hold the middle ground. Only time will tell which approach has the most appeal to consumers.

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